U.S. stock indexes clambered toward record-high territory Tuesday afternoon, as upbeat economic reports helped to feed the buying momentum on Wall Street. The ascent for stocks comes even as investors enter what is expected to be a seasonally challenging month for equities, following the best August returns in more than 30 years.
How are stock benchmarks performing?
The Dow Jones Industrial Average DJIA, +0.52% rose 132 points at 28,563, a 0.5% rise, reversing an opening slide; the S&P 500 index SPX, +0.55% added 19points to reach 3,519, a gain of 0.6%, after touching a all-time intraday high at 3,515.92; while the Nasdaq Composite Index COMP, +1.20% advanced 150 points at 11,924, a rise of 1.3%, touching a record intraday high at 11,929.78.
On Monday, the Dow shed 223.82 points, or 0.8%, to end at 28,430.05. The S&P 500 fell 7.70 points, or 0.2%, ending at 3,500.31. The Nasdaq rose 79.82 points, 0.7%, to end at a record 11,775.46, its 41st record close of 2020.
The S&P 500 clinched its best August return since 1986 and the Dow its best return for that month since 1984, while the Nasdaq recorded its strongest August since 2000.
What’s driving the market?
The winners of the past few months are looking to lead the next one, as September kicks off with further buying of large-capitalization growth and technology stocks, a major trading theme since March when the coronavirus pandemic took hold.
Gains in Apple, Walmart, Zoom Video, Amazon.com and Facebook Inc. underscored that theme Tuesday, with shares in those popular plays carving out fresh gains in the new month.
“I think the stay-at-home trade is still intact,” Lindsey Bell, chief investment strategist at Ally Invest told MarketWatch. But she also views plans schools across the nation to at least partially reopen, as well as areas of the economy hard-hit by the pandemic coming back to life, as positive signs for the so-called “reopening trade,” particularly as businesses and communities gain more confidence around operating “in this new normal.”
In a last-minute decision, New York City opted to delay in-person classes on Tuesday until later this month, with remote learning also delayed until mid-month.
Stock gains firmed after a report on American manufacturers for August showed a fourth straight monthly rise. The Institute for Supply Management said its manufacturing index rose to 56% in August from 54.2% in July. Readings over 50% indicate growth. Economists surveyed by MarketWatch had forecast the index to total 54.9%.
The report followed a comparable reading from IHS Markit, which showed that manufacturing purchasing managers’ index rose to 53.1 in a final reading for August, down slightly from the previously released ‘flash’ estimate of 53.6, but up from 50.9 at the start of the third quarter to post the fastest expansion since January 2019.
“Some of the manufacturing data that came out really helped boost investor confidence today,” . “You have to acknowledge that a lot of this economic data is coming off extremely low and distressed numbers,” she said. “But what’s most important to the market is that we’re moving in the right direction.”
With the “boost from reopenings now mostly in the past,” Oren Klachkin, lead U.S. economist at Oxford Economics, thinks manufacturing’s recovery will end up grappling with “feeble domestic and external demand, lingering supply chain disruptions, weaker energy activity and broad-based uncertainty” until a coronavirus health solution is found.
Federal Reserve Governor Lael Brainard on Tuesday urged the central bank to “pivot” to providing more support for U.S. economic growth in the months ahead, presumably meaning the Fed could accomplish that goal by purchasing more assets, such as U.S. Treasurys or privately held bonds.
Investors already had been anxious to start the new month against a backdrop of elevated stock valuations and a Federal Reserve that has implied it will keep rates ultra-low, even if inflation pressures begin to percolate.
“Technology has regained leadership with broad-based movement back to new highs, and Growth dominating, but bifurcation is growing larger,” Mark Newton, technical analyst at Newton Advisors, said.
He cautioned that breadth, or the number of stocks rising versus those declining, is offering a cautious sign. “Breadth has tailed off ‘big-time’ with more than 5 occurrences in the last few weeks of more decliners than advancing issues,” he said.
As Wall Street works to digest the Fed’s new stance on inflation targeting the result, so far, has been more pressure on the U.S. dollar, a factor that may also support further buying in stocks that boast large overseas businesses.
Internationally, the overnight eurozone IHS manufacturing purchasing managers index pointed to improving conditions in August, as the region’s recovery from the coronavirus pandemic continued, while in China the Caixin purchasing managers index, which is weighted toward small, private manufacturers, rose to 53.1 in August from 52.8 in July.
Which stocks are in focus?
- Shares of Tesla Inc. TSLA, -4.49% were down 4.4% Tuesday after it announced a $5 billion offering, which deflated its momentum after its stock split on Monday.
- Zoom Video Communications Inc. ZM, +38.94% shares soared 39.4% Tuesday after the company made as much money in May, June and July as it did in all of 2019, beating even the outsize expectations of Wall Street, based on quarterly results reported on Monday.
- DocuSign DOCU, +17.89%, which enables electronic signatures on legal documents and is due to report its own results after Thursday’s closing bell, was seeing its shares gain more than 17% as the category of software-as-a service companies benefit from Zoom’s powerful quarterly results.
- Shares of Eastman Kodak Co. KODK, +25.75% were up 28% Tuesday after the company disclosed that D.E. Shaw & Co. has taken a 5.2% stake in the company.
- Airline shares were trading mixed Tuesday, a day after Delta Air Lines DAL, -0.94% and American Airlines Group AAL, -0.11% said they are dropping the fee on most tickets changes for domestic flights, copying an earlier move by United Airlines UAL, -0.69%.
How are other assets trading?
The yield on the 10-year Treasury note TMUBMUSD10Y, 0.682% shed 3 basis points at 0.68%, after adding 15.9 basis points during August. Bond prices move inversely to yields.
Gold GCZ20, +0.02% closed 30 cents higher, or 0.02%, at $1,978.90 an ounce, its highest settlement in about two weeks. West Texas Intermediate crude for October delivery CL.1, +0.32% traded 20 cents, or 0.5%, higher at $42.80 a barrel on the New York Mercantile Exchange.
The ICE U.S. Dollar Index DXY, +0.16%, which tracks the currency versus a basket of six major rivals, rose 0.2% after trading down earlier in the session.